The idea that Republicans in congress were going to force big cuts in the country’s most important programs – social security, medicare, and medicaid – by taking Wall Street hostage with the debt ceiling is absurd. It was only necessary for President Obama to call their bluff.

The bottom line is that the debt ceiling is a gun pointed first and foremost at Wall Street’s head. And, there is no way on earth that Wall Street is going to let the Republicans pull the trigger.

This is silly. “Wall Street,” by which Baker means the major banks, has very little sway over the 87 Tea Party freshmen. It’s the GOP freshmen who are currently the key constituency in the debt ceiling negotiations, and if anything, most of them would take pride in rejecting impassioned pleas from JPMorgan and Goldman Sachs. The idea that the major banks can just snap their fingers and get the Tea Party freshmen to drop their debt ceiling demands is beyond ridiculous. The Tea Party freshmen are thoroughly crazy, and there’s no telling what they’ll do. But if you think they’re all tools of Wall Street, then you simply haven’t been paying attention.

Of course, making this argument allows Dean to — what else? — blame Obama, this time for not “calling their bluff.” (It’s easy to call bluffs from the sidelines, isn’t it?) Which, let’s be honest, was the point of his column anyway.

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comments:

Anonymous
said...

Yes, the GOP freshmen wanted the banks to fail. They will not compromise. They believe that there will be "Morning in America" after a USA default.

There are 435 votes in the House. You're right about the 87 or so (numbers vary) tea partiers but so what? Wall Street own the rest of the Republicans as well as a majority of Democrats, they don't need this to be a partisan issue.

Afraid I have to agree with Dean Baker on this one. The Republican leadership has been looking for an excuse to position themselves as the adult in the room among conservatives. They have given the tea partiers enough rope to hang themselves and are awaiting the expected conclusion to Act I of the post 11/2010 election beltway production in which the tea partiers screw up badly after which GOPers can reassert control of the party. Truthfully, Mitch, John and Eric thought it would have happened by now. But failing that they see in the debt ceiling crisis a risky chance to win it all. Tea party intransigence on tax increases could preciptate a default and financial markets crisis which in a single stroke discredits them and creates a chaotic jobs/economy headwind for Obama which chips away at his 2012 re-election chances. The cycnical truth is, the GOP leadership is telling their capital markets supporters everything is under control when in fact, the senior GOPers really don't care if things blow up.

Your premise is flawed. Wall Street needs no sway over Tea Party freshmen: it controls the GOP Leadership. That Leadership plans to pass the McConnell Plan with the help of Democratic votes.

The Tea Party does not control the Leadership, but it does control GOP Congressional primaries. For now, McConnell thinks he can survive any primary challenge. However, keep in mind McConnell also thought Rand Paul would lose his primary, and he actively supported Paul's GOP opponent.

By "you", I meant EofC. You, on the other hand, have a good point. The question is whether the corporatist Leadership views potential Te Party primary challenges as a credible threat; or, worst yet, if they imagine the Tea Party might move to a third party. As I said, McConnell certainly seems unconcerned, but he is the leader most distanced from the Tea Party. Perhaps Boehner is sweating this more.

What's interesting from a political science/game theoretical point of view in this confrontation is that its not at all clear who's threatening who, and with what. Its a very opaque, multilateral game of chicken. Does Boehner cut a deal with his golfing buddy and then get torched by the Tea Party? Or do the Tea Party scuttle the good ship GOP? There are many threats, and many threatened parties here, and the relationships between the actors on Capitol Hill, and those on the Hill of Capital are anything but clear. Its a field of battle where someone smarter than the participants could make a great reputation.

If you're trying to say that the Republican leadership has no tools with which to extract Tea Party agreement, then that must be wrong as committee assignments, ability to introduce bills, etc., have been used effectively against troublemakers historically.

Methinks this argument is too clever by half and that the Rethugs are using the TP's just as they want to.

Boehner, of course, is the perfect foil - no real education or intelligence and vast gratitude for being chosen for a position for which he has no credentials.

And it's evident that McConnell is in charge and is keeping Boehner on a short leash with Cantor baying for his job from the sidelines.

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I think you make several good points and I would agree that the tea party is putting the pressure on wall street. However, regardless of which way the debt deal went (left/right) the real losers are the American public who can't seem to catch a break these days. Interesting analysis!

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I'm a finance lawyer in New York. I used to focus on derivatives and structured finance (you know, back when there was a structured finance market). I spent the majority of my career at one of the major investment banks. My background is in economics and, unfortunately, politics.

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